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Petitioner: RELACOM PAKISTAN (PVT.) LTD., KARACHI VS Respondent: The COMMISSIONER INLAND REVENUE, ZONE-III, LTU, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Syed Ayaz Mehmood Title:RELACOM PAKISTAN (PVT.) LTD., KARACHI vs The COMMISSIONER INLAND
REVENUE, ZONE-III, LTU, KARACHI Case No.: I.T.A. No. 1113/KB of 2017 Date of Judgment:2018-08-30 Reported As: 2019 PCTLR 1277, 2019 PTD (Trib.) 1741 Result: Order accordingly Judgment ORDER MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER :-The appeal under consideration has been filed by the appellant against the appellate Order No. 35 dated 27-09-2017 passed by the learned Commissioner Inland Revenue (Appeals II) Karachi [the CIR(A)] for the tax year 2011 on the grounds as set-forth in the Memo. of Appeal. FACTS 2. The brief facts, as gleaned from the records, leading to this appeal are that the appellant is a Private Limited Company driving income from rendering and providing telecommunication network planning services, power distribution services, site designing, installation, commissioning, integration, testing, updating, maintenance / management of equipments and network by providing GSM Technology for trans receiver stations and BTS towers in Pakistan to various customers. The return of income was filed on 13-03-2012 declaring income of Rs.22,225,018/-. The return constituted deemed order under section 120 of the Income Tax Ordinance, 2001 [the Ordinance ] was subsequently amended under section 122(5A) of the Ordinance, by the Additional Commissioner Inland Revenue Audit Range-B, Zone-III, Large Taxpayers Unit, Karachi (AdCIR1 ) vide DC No. 03/131 dated 18.10.2012 considering the tax deducted at Rs.61,873,934/- under Section 153(1)(bl of the Ordinance as adjustable. On examining the record, by the Additional Commissioner Inland Revenue, Audit Range-B, Zone-III, Large Taxpayer's Unit Karachi (AdCIR2 ), it was found by him that the amended order is erroneous in so far as prejudicial to the interest of revenue on the issue that tax deducted under section 153(1)(b) of the Ordinance was to be treated as minimum tax under Third Proviso to subsection (6) of the Section 153 of the Ordinance. The ADCIR confronted the appellant through show-cause notice and after obtaining explanat ion, passed the amended order under section 122(5A)(4) of the Ordinance, vide DC No.94/51 dated 07.06.2017, raising demand of
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Rs.80,826,907/- treating the tax deducted at Rs.61,873,934/- as minimum tax. Against that order , an appeal was filed before the Commissioner Inland Revenue, (Appeals II), Karachi. Having cons idered the arguments submitted by the learned Counsel of the appellant; the learned CIR(A) confirmed the second amended order through the appellate order bearing No. 35 dated 27-09-2017. Decision in First appeal [(CIR(A)] 3. The learned CIR(A) while passing the impugned order provided complete history of section 153 of the Ordinance and given comprehensive finding on the issue. Relevant extract of the finding are reproduced for the ease of reference :- (i) ......................................... (ii)........................................ (iii).................................... (iv)................................. (v) The Lahore Bench of learned Appellate Tribunal in I.T.A. No. 1856/2013 (Tax year 2010) and I.T.A. No. 1857/2013 (Tax year 2011) dated 29.10.2015 maintained that tax deducted at source for services provided or rendered is minimum tax. The learned ATIR held the view that clause 79 was inserted in law on 31.10.201 1 and was therefore not applicable prior to tax year 2012. (vi) The undersigned is in agreement with learned AdCIR that amendment introduced through Clause (79) of Part IV of Second Schedule "Exemption from specific provision" relates to exemption and reduction in tax liability the said amendment is a substantive in law and cannot be applied retrospectively . (vii) Regarding the binding implication of Circular No. 6 of 2009 which was subsequently withdrawn by FBR itself, the Honorable Sindh High Court in recent pronouncement in C.P. No. D-3797/ 2016 dated 16.01.2017 in the case of Port Qasim Authority and C. Ps. Nos. D-2864 to 2865 and 3089 of 2016 in the case of ARY Communication Limited it has been categorically held that any circular/instruction issued while applying the minimum tax on services which is contrary to law, the tax authorities have been directed to decide the matter without having been influenced by any circular or instructions. (viii) Hence, reliance placed by learned AR of the appellant on reported judgment of ATIR Karachi bench 2014 PTD 484 (Tribunal) cannot be acceded to in the light of judgment, quoted supra to the contrary . (ix) For the reasons narrated above, I am of the concerted opinion that the learn ed assessing officer has rightly assumed the jurisdiction by invoking section 122(5A) of the Ordinance, treating tax deducted under section 153(1) (b) as minimum tax in the case of appellant for the tax year in question. Therefore, 1 decline to interfere with the impugned order and appeal hereby stands dismissed." 4. Being aggrieved and dissatisfied with the above findings of the learned CIR (A), the taxpayer has preferred the instant appeal before this Tribunal. 5. On the date of hearing Mr. Abdul Qadir Memon, A.R., the learned, counsel for the appellant appeared while Mr. Ashfaque Ahmed Awan, D.R. represented the department. ARGUMENTS OF A.R. PRELIMINAR Y OBJECTIONS
6. At the very outset, the learned counse l for the appellant raised the legal object ion that the ADCIR-2 had again examined the return while further initiating the amended proceedings under section 122 (5A) read with subsection (4) of the Income Tax Ordinance, 2001. The returns so filed by fiction of law constituted deemed order under section 120 of the Income Tax Ordinance, 2001 which was amended under section 122(5A) and the deemed assessment order under section 120 had been merged into amended order under section 122(5A) but the ADCIR-2 had further amended under section 122(5A)/4 the return of income/deemed order under section 120 which was no more in the field. Therefore, the further amended proceedings initiated under section 122(5A)/4 is null and void. 7. The learned counsel for the taxpayer has further raised the legal objections that twin conditions should come from admitted facts and not from disputed facts gathered through fishing inquiries. Twin conditions are to be proved at the time of issuance of notice under section 122(5A) and not on the basis of record submitted and subsequent
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inquiry . He has further pleaded that in the repealed Act, 1922 and Repealed Ordinance, 1979 powers of assessments were with the ITO/DCIT and therefore powers of IAC under sections 34A and 66A were of supervisory authority as quality controller and the scope was large. In the 2001 Ordinance powers are with Commissioner through delegation and therefore, scope of (5A) is narrow . He further explains that in 2001 Ordinance there are two schemes 177-122(1)(5) for inquiries and factual controversies and 122(5A) for legal controversies on admitted facts with twin conditions. He placed reliance on the judgment reported as 113 Tax 53. Learned counsel for the taxpayer further asserted that the words "after making or causing to be made, such enquir es as he deems necessary" are from tax year 2013 and are not retrospec tive, reliance is placed on 2014 PTD (Trib.) 2085. Even after amendment inquiry does not mean inquiry from the taxpayer . The inquiry should be independent and not from tax payer . After insertion of words "if he considers that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. The question arises as to which of the two expression is of a controlling nature to arrive at the correct construction of error of law and its prejud icial effect in terms of revenue. Question also arise as to the scope of the key words "such inquiries" can it be read within the confines of the amendment provision or can it be so enlarged as to equate with and entail all types of factual inquires. If this be the case the whole I scheme of audit under section 177 becomes redundant. Such a conclusion which renders redundant another provision of law is against the principle of harmonious construction of a tax statute. Thus, even after the amendment in section 122(5A), inquiry cannot be conducted from the taxpayer . It only empowers the Additional Commissioner to make independent inquiry at his own end and not from the taxpayer , reliance is placed on the judgment reported as 2014 PTD (Trib.) 2085, In support of his argument he has also relied upon the following reported and unreported case law: (1). 2013 PTD (Trib.) 900, (2). 2013 PTD (Trib.) 788, (3). 2012 PTD (Trib.) 1739, (4). 2010 PTD (Trib.) 111, (5). 2012 PTD (Trib.) 1593, (6). 2013 PTD (Trib) 1557 , (7). 2014 PTD (Trib) 2085 , (8). I.T.A. No.799/KB/2014 and (9). I.T.A. No.1236/KB/2016. 8. He has further submitted that the impugned further assessments for the year under review had been passed after detailed scrutiny under section 122 (5A) and not under section 177 as such the same cannot be said to be erroneous being prejudicial to the interes t of revenue and recourse cannot be had to under section 122(5A) of the Income Tax Ordinance, 2001 thus, learned ADDL.CIR-2 is debarred and precluded from indulgence in such like position as held by the Hon'ble Superiors Courts. The learned counsel, therefore, vociferously , further went on to stress that in view of the submissions made hereinabove and case laws decided by the Learned ATIR on the subject and principles of interpretation settled by Hon'ble Apex Court, the order under section 122(5A) is not sustainable in law and may be annulled. He further went on to urge that the order passed under section 122(5A) is an illegal order and without jurisdiction as the queries raised and the additions made are in excess of powers vested under section 122(5A). He contended that the Additional Commissioner was not conducting audit proceedings hence, the queries raised are in excess of jurisdiction. The powers under section 122(5A) is restricted and limited to issues resulting in the amended assessment being erroneous and prejudice to the interest of revenue. Thus, the entire superstructure built and income recomputed by way of re-amend assessment order by ADCIR-2 is null and void and without any legal effect. As the order passed unde r section 122(5A) is beyond the scope and jurisdiction, the additions made are liable to be deleted. Reliance is placed on the decisions reported as 2004 PTD (Trib.) 2449 and 2001 PTD (Trib.) 2902. As this issue has been settled by the Tribunal, the order passed under section 122(5A) may kindly be cancelled and annulled. He further objected that prior to initiating proceedings under section 122(5A), the Additional Commissioner has to prove that the earlier amended order passed was erroneous and as well as prejudicial to the interest of revenue which has caused loss of revenue. Thus, both the conditions are to be fulfilled simultaneously . But if either of the conditions are not fulfilled, the order passed under section 122(5A) is not sustainable in law. This issue has already been decided by various forum while adjudicating on proceedings initiated under section 66A of Repealed Ordinance, 1979 which is in pari materia to Section under section 122(5A) of Ordinance, 2001. Further reliance is placed on the following reported decision. (a) 1992 PTD 932 (SC Pak) Glaxo Laboratories Limited .,
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(b) 2004 PTD 330 S.N.H. Industries (Pvt.) Limited v. Income Tax Department and others, (c) 1984 PTD 137 (HC AJ&K) in Messrs United Builders Corporation, Mirpur v. Commissioner of Income Tax, (d) 1999 PTD (Trib.) 700, (e) 2004 PTD (T rib.) 2449, (f) 2001 PTD (T rib.) 2902 and (g) 1969 PTD (T rib.) 144. 9. In the above decisions it has been held that if both the conditions are not fulfilled simultaneously and there is no loss of revenue or if only one of the conditions are fulfilled, the order passed under section 34A of Repealed Act, 1922, Section 66A of Repealed Ordinance, 1979 and Section under section 122(5A) of Ordinance, 2001 which are in pari materia to each other provisions of law , the order passed has to be cancelled and annulled. 10. The learned counsel further vehemen tly argued that in the case of the taxpayer , as neither of the conditions have not been fulfilled simultaneously and the queries raised and additions made are beyond the jurisdiction and power vested under section 122(5A), the order passed by the Additional Commissioner of Inland Revenue is without and in excess of jurisdiction, nor the earlier amended order was either erroneous, nor the prejudicial to the interest of revenue, the order passed under section 122(5A) is not sustainable in law . 11. Before taking the main factual grounds the learned Counsel of the Appellant Mr. Abdul Qadir Memon brought our attention towards Section 153 of the Ordinance prior to its substitution through the Finance Act, 2011, clarifications issued by the FBR on the matter and history of provisions inserted in section 153(1)(b) read with subsection (6) of the Ordinance and judicial pronouncement on this point of dispute. He referred the following relevant provisions of law . ARGUMENTS OF THE LEARNED COUNSEL ON F ACTUAL GROUNDS OF APPEAL Relevant Provisions of section 153 of the Income T ax Ordinance, 2001. 12. While arguing on the factual grounds, the leaned counsel for the appellant referred to relevant portion of Clause (b) of subsections (1) and (6) of section 153 reads as under:-- 153. Payment for goods and services Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person:-- a) For the sale of goods; b) For the rendering of or providing of services; and c) On the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services; shall, at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division III of Part II of the First Schedule. ..................... (6) The tax deducted under this section shall be a final tax on the income of a resident person arising from transaction referred to in subsections (1) and (IA):-- Provided that subsection (6) shall not apply to companies in respect of transactions referred to in Clause (b) of sub-section (1): Provided further that this subsection shall not apply to payments received on account of:-- i) Advertisement services, by owners of newspaper and magazines; ii) Sales of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan; and iii) The rendering of or providing of services referred to sub-clause (b) of subsection (1) Provided that tax deducted under sub-clause (b) of subsection (1) of Section 153 shall be minimum tax." 13. The learned counsel submitted that the issue of tax deduction under section 153(1)(b) stands settled in favour of the appellant by the superior courts wherein it has been decided that in the case of a company , for all practical purposes the deductions of tax cannot be treated minimum tax. In support of his contentions he placed reliance on a Judgment of the Hon'ble High Court of Sindh in C.P. No. 3797/2016 in the case of Port Qasim and 2864/2016 in the case of ARY Communication Ltd. The learned counsel further relied on the judgments reported as 2014 PTD (Trib.) 484 passed by the Division Bench of the Tribunal. He further submitted that while passing the impugned order , the learned CIR(A) relied upon unreported judgment of the Tribunal bearing I.T.A. No.1857/2013 (Tax Year 2011) dated 29-10-2015 passed by the Single Bench of the Lahore Tribunal. Learned A.R. submitted that while
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passing an order the learned single bench should have followed the reported judgment 2014 PTD 484 passed by the Division Bench of this Tribunal. A single bench cannot differ with the Division Bench which was already in field and the same is neither overruled by Full/Larger Bench nor by the superior courts. In support of his argument he placed reliance on the land mark judgment of this Tribunal reported as 2016 PTD 722 titled as Messrs Shell Pakistan Ltd. v . The CIR, L TU, Karachi (one of us is author) wherein it has been held that: "....it is settled that the earlier judgment in taxpayer's own case has not been overruled has to be taken as good law abiding and binding precedent. There was no occasion for any difference of opinion between the two members, since they were convention bound to follow the earlier decision of Division Bench of this Hon'ble Tribunal in this very case of taxpayer . Even under any circumstances the learned Division Bench while deciding later judgment was bound to follow the earlier judgment. Therefore, it goes to establish that in the case of conflicting judgment, the decision which is favourable to the taxpayer should be followed and the subsequent different view is illegal and per incurium. Law of precedent, uniformity and consistency should be honoured. Hence, the earlier judgment bearing S. T.A. No.145/KB of 2011 dated 17.02.2012 covered the entire aspects of the issues involved in this appeal in question and gave the decision accordingly and the same has not been overruled neither by the larger Bench of this Hon'ble Tribunal not by any Superior Courts. Therefore, the earlier judgment is to be taken as good law and binding judgment." 14. In furtherance to above, the learned Counsel of the appellate also argued that the Division Bench of the learned Appellant Tribunal Inland Revenue Karachi in its decision bearing I.T.As. Nos. 202 and 207/KB/2012 dated 27-10- 2015 [Messrs Interflow Communications (Pvt.) Limited] has also relied upon another decision of its fellow bench in I.T.A. No. 1100/KB/201 1 dated 19-03-2012 [(CIR v. Messrs HRSG Outsourcing (Pvt.) Ltd.)] ; wherein same issue has been decided in favour of the taxpay er holding that tax withheld on the payme nts related to services rendered and provided in terms of Section 153(1)(b) of the Income Tax Ordinance, 2001 in the case of corporate taxpayers is not minimum tax in terms of third proviso to section 153(6) of the Income Tax Ordinance, 2001, but is adjustable tax. The same Bench in another decision in I.T.A. No. 1098/KB/201 1 [(CIR v. Messrs United Human Resourc es (Pvt.) Limited)] dated 19-03-2012 has rendered similar findings. 15. The learned counsel further stated that on the contrary the Honorable Federal Tax Ombudsman [FTO] in a suo motu case reported as 2012 PTD 554 and Review of Findings, Recommendatio ns of the Hon'ble FTO dated 10-07- 2013 took a different view and held that tax deducted on income for providing or rendering of services is a minimum tax in the hands of corporate and other taxpayers in the tax years 2009 to 2011. The relevant extract of aforesaid decision in Review Petition is reproduced as under for case of reference:- "33. It is quite intriguing that S.R.O. No. 1003 dated 31.10.201 1 was issued inserting Clause. (79) in the Second Schedule without getting retrospective approval of the amendment in section 153 by the parliament through Finance Act, 2011. Only subsection of section 153 were 'realigned to provide clarity without changing the taxation regime' through Finance Act, 2011 as explained by FBR itself in Para 19 of the Circular 7 of 2011 dated 01-07-201 1. Nor has the approval of the parliament been sought through Finance Act, 2012 or Finance Act, 2013. 34. It is evident the FBR acted beyond its jurisdiction in exempting corporate sector service providers from minimum tax. The FBR's act of issuing Circular No. 6 of 2009, and then inser ting Clause (79) in the Second Schedule effectively amending the provisions of section 153 of the Ordinance without approval of the parliament smacks of improper motive, as also inefficiency , incompetence and ineptitude. The FBR has no authority to issue S. R. Os. /Circulars which contradicts the statutory provisions of tax laws, as held by the Hon'ble Supreme Court. As no amendment in section 153 was approved by the Parliament, the insertion of Clause (79) in the Second Schedule, changing the whole spirit of taxation regime, was clearly and act without jurisdiction. 35. The bumpy and conflicting seque nce of Circulars and S.R.Os. leadin g to insertion of Clause (79) through S.R.O. 1003 dated 31.10.201 1 being wilful and mala fide comes under the definition of mal- administration in terms of section 2(3) of the F .T.O. Ordinance.
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36. The Review Application is accordingly rejected in above terms, except that as a related aspect of Recommendation (iv) Para 1] is sub judice in the Honourable Lahore High Court, its implementation will be taken up in due course, I the light of final determination of the matter by the superior judiciary ." 16. The learned counsel continued to argue that against the decision of the Honourable FTO a representation was preferred by the FBR before his Excellency the President of Islamic Republic of Pakistan. After considering the facts and legal position, the issue was decided by His Excellency . The relevant extract of aforesaid decision is reproduced as under for ease of reference: - "7. We also would like to submit that your above view is in contrary to the recent decision of His Excellency President of Islamic Republic of Pakistan in the Representation preferred by the FBR against the decision of Honourable Federal Tax Ombudsman in the case of Messrs Might Solution (Pvt.) Limited, Faisalabad decided vide order No. 01/FT0/2015 dated 30-05-2016. We repro duce hereunder the relevant extract of the aforesaid decision for your ready reference" the perusal of case record indicates that the stance of the agency that the FTO was not justified in questioning the exercise of powers given by the statute in spite of the fact that the court have approved the exercise of these powers within the parameters of law. It is established that the FTO is debarred from interpreting the law as it is the function of the courts. Hence FTO has gone beyond the scope of his functions under the garb of maladministration despite the agency has brought to the notice of FTO that the courts have approved the law and Circular No. 6 of 2009 was not contrary to the provisions of law and that as it was placed before the National Assembly through the Finance Bill. It was never withdrawn by the FBR and the clarifications issued by the Board did not indicate that the Circular was unlawful. FTO has not power to interpret the law. Even otherwise, the complainant has remedy to file an appeal after expiry of sixty days. In such circumstances, which remedy of appeal was available FTO could not interfere with the matter of assessment of tax and interpretation of law. Thus FTO having gone beyond the scope and powers, the impugned findings are not sustainable. Consequently , the agency's representation is liable to be accepted. However , the complainant can seek remedy available to him from the relevant forums under the law . 8. Accordingly , the President has been pleased to accept the representation of the Agency/FBR and set aside the impugned recommendations of the learned FT O." Factual and legal position of the case 17. In respect of factual and legal position of the present appeal the learned Counsel of the Appellant stated that the department has based its stance mainly on the provisions of Section 153(1)(b) of the Ordinance read with third Proviso of Section 153(6) of the Ordinance, various Circular letters/Circulars of FBR issued in this regard from time to time and the findings of the Hon'ble FTO quoted supra; wherein, it was held that after amendment in Section 153 of the Ordinance through the Finance Act, 2009 all NTN holders providing services were ousted from benefit of refund and observed Circular No.6 of 2009 as unlawful. In this regard, the Counsel of appellant further stated that the FBR filed review petition on the ground that, it was not within the power of the Hon'ble FTO to interpret the statutory provisions, which is in the purview of competent forum created by the statute and the opinion of any other person is not relevant. Two judgments have been passed by the Appellate Tribunal Inland Revenue and the view was taken by the FBR that the Hon'ble FTO has no power to declare any law as illegal and cannot interfere with that matter . The Hon'ble FTO; however rejected the review petition on the same ground on which the complaint was accepted. However , His Excellency the President of Islamic Republic of Pakistan after consid ering the facts and legal position, held that in such circumstances, where remedy of appeal was available the FTO would not interfere with the matter of assessment of tax and interpretation of law. Thus FTO having gone beyond the…
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